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Regal Cinemas, Steeped in Debt,
Considers Filing for Bankruptcy

By

Bruce Orwall and

Gregory ZuckermanStaff Reporters of The Wall Street Journal

Updated Nov. 15, 2000 12:29 a.m. ET

Regal Cinemas Inc., the nation's largest movie-theater chain, said it is considering a bankruptcy filing, an embarrassing stumble for the high-profile buyout firms that are its majority owners and the latest sign of the hard times ravaging the theater business.

In a Securities and Exchange Commission filing, the company indicated that it is in covenant default on its bank debt and its equipment-financing arrangement. Regal said in the filing that it has hired financial advisers to help evaluate various restructuring alternatives, which include a possible bankruptcy reorganization.

Buyout firms Kohlberg Kravis Roberts & Co. of New York and Hicks, Muse, Tate & Furst of Dallas bought Regal in 1998, combined it with other theater assets and then went on a building spree to add glitzy new "megaplex" theaters to the chain. Regal now operates 4,472 screens at 413 locations. Many other chains also were expanding rapidly, which quickly created a vast oversupply of movie screens in the U.S. The theater business has been scrambling to close obsolete older theaters, but the squeeze has already prompted several major circuits to file for protection under Chapter 11 of the U.S. Bankruptcy Code.

Regal may be next. Having funded its aggressive expansion effort with borrowing, Regal now has about $1.02 billion in debt. In addition to a possible restructuring, Regal aims to devise a financial plan that includes the possible sale of nonstrategic assets and a continuation of efforts already under way to close poorly performing theaters.

Theater industry insiders, however, have said that Regal has also been plagued by the poor performance of some of its expensive new megaplexes. Regal has countered that its track record in building new theaters is no worse than any other chain.

Regal officials couldn't be reached for comment on the filing. A KKR representative declined to comment, as did a representative for Hicks Muse.

Though Regal has defaulted on its debt, the company hasn't actually missed a payment to its creditors. In fact, Regal has more cash on its hands than at any time in more than six months, analysts say. Rather, Regal has piled on so much debt, and has so little financial flexibility, that it has violated a lending covenant with its banks leading to a "technical" default, according to Kevin Kusio, a junk-bond analyst at KDP Investment Advisors Inc. in Montpelier, Vt.

Regal's next hurdle is on Dec. 1, when it is scheduled to make a $28.5 million payment to bond holders, according to analysts. The company is scheduled to make an additional $8.9 million payment on Dec. 15. As negotiations continue with lenders, Regal's banks may move to block the company from making these interest payments.

"It's up to Regal whether they do a bankruptcy filing soon or they continue to negotiate with creditors before Dec. 1," said Kevin Kizil, a junk-bond analyst at KDP Investment Advisors Inc.

But Regal Chairman and Chief Executive Michael Campbell has said -- in an interview this fall -- that the company would "clearly prefer" to restructure its debt through voluntary negotiations with its creditors, rather than enter bankruptcy proceedings.